Cera Sanitaryware - Encouraging growth outlook - ICICI Securities

Cera Sanitaryware (CRS) Q3FY21 performance was marred by worker strike amid the ongoing pandemic situation. However, the silverline for the quarter was the beat in its EBITDA margin at 12.8% (I-Sec: 11%), up 10bps QoQ largely led by cost control and cost optimisation. Company lost high valued revenue to the tune of Rs650mn and EBITDA of Rs100mn during the quarter due to the strike. Management however sounded upbeat on growth prospects going forward (Jan'21 sales grew by 20% YoY) with sharp increase in the demand visibility across all its product segments. Company continues to focus on cost control and balance sheet strengthening. Maintain HOLD.

- Valuation and outlook. Factoring-in the faster-than-expected recovery and higher-than-anticipated margins, we increase our revenue and earnings estimates by 4.6%/8.6%/12.9% and 20.9%/13.6%/12.5% for FY21E/FY22E/FY23E, respectively. We now expect CRS to report revenue and PAT CAGRs of 13.7% and 20.6%, respectively, over FY20-FY23E. We retain our HOLD rating on the stock with a revised target price of Rs3,660 (earlier: Rs3,045), valuing it at 24x FY22E earnings. Key risks: increase in competitive intensity in sanitaryware segment and inability to take price increases in the near term.

- Revenues down 3.6% YoY due to worker strike during the quarter. CRS reported 3.6% YoY decline in its standalone revenues to Rs3.1bn, largely in line with our estimates. This was largely due to worker strike at its Kadi plant impacting sanitaryware revenue, which declined 5% YoY. Tiles/wellness too declined 6.6%/37.1% YoY, respectively. Faucets revenue however increased 7.7% YoY. Production levels have now come back to normal levels with Jan'21 reporting 20% YoY growth. Management remained upbeat on growth prospects in the near term citing higher demand across product segments and increase in construction activity. We expect CRS to report 13.7% revenue CAGR over FY20-FY23E.

- Standalone EBIDTA margin at 12.8% (I-Sec: 11%), down 60bps YoY. EBIDTA margin came in at 12.8% (I-Sec: 11%), down 60bps YoY and up 10bos QoQ, led by cost control and optimisation. Gross margins were impacted largely by higher outsourcing mix and higher sales of entry-level products. However, aggressive savings in some of the fixed costs over the last year restricted the fall in EBITDA margins. Going forward, we expect EBITDA margin to rebound to 16% by FY23E from 13.5% in FY20 on the back of cost-saving initiatives, price hikes taken in sanitaryware and faucets segments in particular, and operating leverage.

- Standalone PBT up 1.9% YoY to Rs389mn. CRS posted higher than expected PBT of Rs389mn (I-Sec: Rs297mn) driven by better-than-expected EBITDA performance. It reported standalone PBT at Rs291mn, up 2.5% YoY.

Shares of CERA SANITARYWARE LTD. was last trading in BSE at Rs.3525.1 as compared to the previous close of Rs. 3515.4. The total number of shares traded during the day was 302 in over 145 trades.

The stock hit an intraday high of Rs. 3562.05 and intraday low of 3500. The net turnover during the day was Rs. 1066516.

Source : Equity Bulls

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